Indian retail rules change

12 January 2012

NEW DELHI: Companies like Adidas, Starbucks and Marks & Spencer can now take full control of their Indian retail stores, as rules limiting single-brand chains to joint ventures have been lifted.

Rajan Bharti Mittal, managing director of Bharti Enterprises, one of the largest retail groups in India, expressed optimism about this change, and the further liberalisation that could follow.

"Increased investments by foreign single-brand retailers will not only help improve consumer choice but also enhance competitiveness of Indian enterprises through access to global designs, technologies and management practices," he told the Financial Times.

IKEA, the Swedish furniture chain, has not yet established a presence in India, demonstrating how concerns regarding the previous ownership model often outweighed the attractions of rising affluence.

"We want to open in India," Mikael Ohlsson, the chief executive of Ikea, said. "There is a real need of good home furnishings at low price in India."

One new obstacle, according to Arvind Singhal, chairman of Technopak, the consultancy, is that overseas chains fully owning over 51% of Indian stores must acquire at least 30% of their products sold in India from small local suppliers.

He said: "If a foreign brand like Ikea comes to India they want their own suppliers, who are very efficient. If they come here and do find good local suppliers, what happens when those suppliers soon become too big to be included? This means that the reform will not mean very much."

Anil Talreja, a partner at Deloitte India, the business services firm, also warned operators already trading in India, such as Adidas, Gucci and Louis Vuitton, were the most likely to make major moves.

"Action may not come from new players. Only those who understand the Indian markets and its challenges and policies will be interested," he said.

Other observers suggested it was improbable that equivalent rules would be extended to multi-brand retailers such as supermarkets, which is a source of on-going contention.

"People think that this would lead to a positive stance on multi-brand retail soon," Sameer Narang, an analyst at HDFC Securities, said. "My opinion is that it's not coming any time soon, given the way things went the last time the government tried to introduce it, I doubt a lot of traction will be seen on it."

Data sourced from Financial Times, Economic Times, AFP; additional content by Warc staff